State Manufacturers Welcome Revamp To Federal Export Rules

Slimming Down of System Pending Approval From Congress

The federal government's complex, overgrown system of export regulations is at long last getting a haircut, a step received warmly by Connecticut manufacturers.

President Barack Obama last week took the first hack at simplifying the country's export system, which remains largely unchanged since being enacted during the Cold War. Through an executive order on Friday, the president consolidated the responsibility for registration and licensing of certain goods to the State Department. Separately on Thursday, the president trimmed some less sensitive items from a list of closely regulated federal exports.

The existing rules closely regulate the comings and goings of goods and information related to technologies that are deemed particularly sensitive, like satellites and aircraft, and they serve an important national security function. But the administration and others say the rules' focus is too broad.

"It would be difficult for anybody who understands technology and secrets to look at this situation and not create some clarity around the things that really don't need to be protected," said Andrew Gibson, chief executive of AeroCision in Chester. "It's really a no-brainer."

Many expect the move to help manufacturers that are looking to export aerospace parts or highly technological components by giving companies a single point of contact — the State Department — and lowering the bar for what products require the closest of scrutiny. Depending on the product, exporters currently bounce between the Commerce Department, the Defense Department and the State Department.

Efforts to reform the export control system date to the fall of the Soviet Union, according to U.S. Rep. Joe Courtney. Those initial proposals failed, and the system has remained largely the same ever since.

Courtney expects the reforms, which need to be approved by Congress in 30 days, to move forward. "If you want a textbook example of wasteful government regulations, this takes the prize," he said.

The latest high-profile case for reform came in April 2010, when then-Secretary of Defense Robert Gates gave a speech that laid out what he would like to see in new export regulations and identified the system's current problems. "We were wasting our time and resources tracking technologies you could buy at Radio Shack," he said, recalling his service at the Central Intelligence Agency.

Gates, in his speech, took aim at the thick bureaucracy involved with export control. In response, he proposed a broad consolidation of the existing export systems and a refocusing on the 5 percent of cases that require the close, careful attention of the government's increasingly limited resources.

"It makes little sense to use the same lengthy process to control the export of every latch, wire and lug nut — for a piece of equipment like the F-16 — when we've already approved the export of the entire aircraft," Gates said.

'Byzantine' Export Laws

When AeroCisionfirst got into exporting, the companyhired a consultant to guide it through the "Byzantine" export laws, Gibson said. The laws, which he called thoroughly unclear, encourage intensely conservative interpretations to ward off penalties. "You have to go overboard to be sure you're in compliance."

Gibson said he has been waiting for the government to take another look at the regulations "but never really counted on it because it hadn't changed in decades."

The company recently landed a contract with a European defense company and applied for the necessary licenses to export the part. The license took three months to get approved.

"It's nice that someone is reviewing these laws and making sense of them because some are really not needed anymore," Gibson said.

The way the law is set up currently is a source of much anxiety for manufacturers. Federal requirements for exports often mean longer lead times for sales and can require an extra employee to focus on compliance.

"There is a worry on the part of manufacturers who are just getting into exporting that it is very burdensome and it is going to take extra work and corporate dollars to have an employee that just focuses on export regulations," said John Fusco, a lawyer at Edwards Wildman Palmer LLP in Stamford, who also works with the Connecticut District Export Council.

Fusco said that some of the worry might just be fear of the unknown and that once companies get into the system it is less intimidating. "It imposes additional steps on the company," Fusco said, "but the regulations exist, and you have to comply with them."

Many said the regulations also can be a drag on companies as they compete with foreign firms for contracts.

Anne Evans, director of the U.S. Department of Commerce's regional office in Middletown, recalled a common scene at trade shows: foreign manufacturers openly advertising the fact that they don't have to work through the U.S. regulations.

They sell products with the added point that they don't have the added cost — in time and treasure — of complying with a sea of licensing and approvals. And how does that sales pitch work out for the foreign firms? "They're going to get those sales before the Connecticut company because nobody wants to do that paperwork," Evans said.

Mike Scotto, national sales manager for Alpha Q, a precision machining firm in Colchester, said that on a recent trade mission to France with U.S. Sen. Richard Blumenthal the foreign company's preference for non-U.S. manufacturers was made clear.

"For a commercial product it's not so bad, but when it's on the military side of it, they make a point that that work will remain in Europe," Scotto said.